The recent decision of the English Court of Appeal in Coulson v News Group Newspapers Limited [2012] EWHC 3482 (QB) will be of interest to employers who provide their employees with indemnities for costs (such as legal costs) incurred as a result of their employment.

In 2007, Mr Coulson terminated his employment with News Group Newspapers (NGN) and the parties entered into an agreement which provided that NGN would pay any reasonable costs and expenses "properly incurred" by Mr Coulson after the termination of his employment which arose from his having to "defend, or appear in, any administrative, regulatory, judicial or quasi-judicial proceedings as a result of his having been the Editor of the News of the World" (Indemnity Clause). Mr Coulson was subsequently arrested and charged with unlawful conspiracy to intercept communications and with making unlawful payments to police officers.

NGN agreed to pay Mr Coulson's costs in respect of public investigations into the conduct of newspaper organisations, but refused to pay the costs incurred in defence of the criminal proceedings. Mr Coulson filed a claim against NGN for payment of those legal fees on the basis that they came within the scope of the Indemnity Clause.

NGN argued that it was not obliged to pay the costs of or incidental to the criminal proceeding because they were not incurred as a result of Mr Coulson having been editor of the News of the World but, rather, because of his own personal misconduct outside the lawful duties of an editor. It contended that the indemnity should be construed to be limited to costs incurred in defending proceedings arising from the "ordinary occupational hazards" of being an editor, such as libel actions.

The Court did not accept that the Indemnity Clause could only extend to lawful duties as such a construction would deprive the indemnity of all practical use; meaning it would not even cover situations such as libel or publications that were in contempt of court. Instead, the Court considered that the scope of the Indemnity Clause had to be determined by reference to whether the criminal allegations arose out of how Mr Coulson went about the performance of his job, or whether they arose out of some act having nothing whatsoever to do with performing the job.

As to whether the expenses were "properly incurred", the Court held that it was artificial to subject the indemnity to scrutiny of the nature or merits of the intended defence, or to the outcome of the trial itself. Rather, the phrase "properly incurred" simply meant costs of a nature properly to be regarded as required in the defence of the particular proceedings in question.

For these reasons, the Court was satisfied that the Indemnity Clause did cover Mr Coulson's costs and expenses of defending the criminal allegations.

The decision is an important reminder that indemnity clauses should be carefully drafted, and clearly and unequivocally express the parties' intentions.